Ten Peaks Coffee Company Inc. Reports Third Quarter and Nine Month Results for 2011

Nine-Month Processing Volumes, Revenue, Gross Profit and Net Income All Up Over 2010

TRADING SYMBOL: The Toronto Stock Exchange - TPK

Ten Peaks Coffee Company Inc. will hold a conference call to discuss its financial results for the three and nine months ended September 30, 2011 on Friday, November 4, 2011 at 8:00 am Pacific Time (11:00 am Eastern Time). To participate, please dial 1-888-231-8191 (toll free) or 647-427-7450 (GTA and international) approximately five minutes before the call and provide the company name or Conference ID: 21948500.  A replay will be available through Friday, November 18, 2011 at 1-855-859-2056 (toll free), 416-849-0833 or 778-371-8506, passcode: 21948500. In addition, a live and archived webcast can be accessed at http://www.investorcalendar.com/IC/CEPage.asp?ID=166390 or on Ten Peaks' website at www.tenpeakscoffee.ca

VANCOUVER, Nov. 3, 2011 /CNW/ - Ten Peaks Coffee Company Inc. ("Ten Peaks" or "the company") today reported its financial results for the three and nine months ended September 30, 2011. Overall, the company posted a solid performance, with nine-month sales, processing volumes, gross profit and net income all up over the same period last year. EBITDA for the first three quarters of 2011 was down, due to higher operating expenses and a weaker US dollar, which reduced the company's processing revenue when converted to Canadian dollars.

Ten Peaks holds all of the outstanding securities of Swiss Water Decaffeinated Coffee Company, Inc. ("SWDCC"), a premium green coffee decaffeinator located in Burnaby, BC. Accordingly, the results reported here are based on SWDCC's operating performance.

Operating Results

In $000s except per share amounts     3 Months Ended    9 Months Ended 
(Unaudited)     September 30   September 30
      2011   2010   2011   2010
                   
Sales      $ 14,083    $ 8,487    $ 42,767    $ 24,267
Gross profit     1,321   1,349   5,159   3,936
EBITDA(1)     584   875   2,576   3,122
Net income (loss)     (5)   224   343   123
Per share amounts:                  
EBITDA per share     0.087   0.131   0.386   0.468
Net income (loss) per share     (0.001)   0.034   0.051   0.018

(1)  EBITDA is defined in the company's Management's Discussion and Analysis, which will be posted on SEDAR on or before November 4, 2011.

"We are satisfied with the results achieved during the first three quarters of 2011," said Frank Dennis, President and CEO of Ten Peaks. "Ten Peaks continued to record modest growth in our processing volumes, despite a number of ongoing macro-economic and industry-related challenges. We believe the positive performance is a direct outcome of our solid growth strategy, which has seen us invest more time and money in several key areas of our organization."

Over the past two years, management has been working to strengthen Ten Peaks' market position by directing more resources toward quality and process improvements and enhanced inventory practices. Additionally, in the second half of 2010, Ten Peaks augmented its sales and marketing resources, which better positioned the company to win new accounts and grow its business with existing customers. These efforts have enabled Ten Peaks to gain especially good traction with its specialty regional customers, who collectively recorded year-over-year volume growth of 27% during the first three quarters of 2011. These gains were partially offset by reduced orders from certain large national accounts, as well as a change in delivery timing which shifted some processing volumes into the fourth quarter. As a result, Ten Peaks' nine-month processing volumes rose by 2% over 2010.

The company's volume increases were recorded despite extremely challenging market conditions. For the past three years, the specialty coffee industry has been hampered by a shortfall in the availability of premium green coffee due to climatic issues in key coffee-producing regions. This coincided with rising global demand, driving rapid increases and extreme volatility in coffee commodity prices since June 2010. This trend continued during the first three quarters of 2011, with the New York 'C' coffee commodity price averaging US$2.61, compared to US$1.52 for the same period in 2010. A high coffee price affects Ten Peaks' business in a number of ways, increasing both its revenues and its cost of goods sold, while also limiting the ability of some smaller customers to fully replenish their coffee inventories due to credit constraints. Additionally, the increased commodity costs have gradually been passed on to consumers, with recent grocery data suggesting that higher coffee retail prices are dampening demand.

Sales revenue for the three and nine months ended September 30, 2011 was up significantly year-over-year, increasing by 66% and 76%, respectively. In both periods, the growth was mainly due to the significant increases in the commodity price for green coffee, together with a proportionate rise in SWDCC's "non-toll" business.

SWDCC generates revenue in two ways. First, it decaffeinates customer-owned coffees, including organically certified coffees, for a fee - its "toll" business. Secondly, it purchases high-quality green coffees, decaffeinates them and markets them to the green coffee trade - its "regular" or "non-toll" business.  Revenue from its toll arrangements consists entirely of processing revenue, while revenue from its non-toll business includes both processing revenue and green coffee cost recovery revenue. Accordingly, growth in SWDCC's non-toll business will drive up the company's revenues, as well as its cost of sales.

During the first nine months of 2011, SWDCC's regular business grew 69% by volume, while its toll volumes declined by 51%. This was mainly because, at the end of 2010, two large customers transitioned from using SWDCC's toll services to purchasing the company's premium decaffeinated green coffee. Additionally, SWDCC's non-toll business has been growing as a percentage of its total sales for the past few years, as more customers seek to reduce their working capital commitments.

During the three and nine months ended September 30, 2011, Ten Peaks generated 56% and 59% of its sales in US dollars, respectively. This was down from 78% and 77% for the same periods last year, due mainly to increased revenue from Canadian customers.

While the US dollar appreciated by nearly eight cents during the third quarter of 2011, it still remained weaker than in 2010, averaging $0.98 for the three and nine months ended September 30, 2011 compared to $1.04 for the same periods last year. As a result, Ten Peaks' sales revenue was negatively affected by a decline in foreign exchange. On the cost side, the stronger Canadian dollar helped to partially offset an increase in green coffee costs, as coffee commodity prices are quoted in US dollars.

Despite the positive foreign exchange impact on input costs, the company's cost of sales for the third quarter and first nine months of 2011 increased significantly on a year-over-year basis, rising by 80% and 85%, respectively. In both periods, the jump was related to higher coffee commodity prices, as well as the increase in regular volumes. This was partially offset by reduced depreciation on production-related equipment and leasehold improvements, due to changes in their estimated useful lives.

Gross profit for the three months ended September 30, 2011 totaled $1.3 million. This was down slightly from $1.4 million for the third quarter of 2010, when a sharp rise in coffee commodity prices pushed up margins on Ten Peaks' regular sales. Nine-month gross profit rose by 33%, with lower depreciation costs more than offsetting higher production-related labour costs.

Operating expenses for the third quarter of 2011 were lower than in the same period of 2010, as lower market research costs more than offset higher administration expenses. Nine-month operating expenses were up over 2010, reflecting incremental sales and marketing resources, as well as higher production-related labour costs, increased logistics and accounting staff and incremental professional fees.

EBITDA fell by $0.3 million to $0.6 million in the third quarter of 2011 compared to the same period in 2010, due to the increased green coffee costs. During the first three quarters of 2011, EBITDA fell by 18% on a year-over-year basis, due to higher operating expenses and a weaker US dollar, which reduced processing revenue upon conversion to Canadian funds.

During the nine months ended September 30, 2011, Ten Peaks paid out $1.0 million to shareholders, compared to $1.8 million during the first three quarters of last year. Of the 2011 payments, $0.8 million represents the quarterly dividends paid in April and July 2011, and $0.2 million represents the last monthly distribution to unitholders of the former Fund, paid in January 2011. The payout ratio of dividends to EBITDA was 40% this year, compared to 58% in the first three quarters of 2010. The decreased payout ratio reflects a reduction in the total amount the company pays to shareholders each quarter, which took effect when the Fund converted to a corporation.

In order to offset the impact of changing commodity prices and exchange rates on its cash flows, Ten Peaks enters into coffee futures and foreign exchange forward contracts. However, as it does not use hedge accounting, the current market value of its hedge position must be recognized at each balance sheet date, even though the underlying value of these derivative instruments may change before the contracts mature.

For the nine months ended September 30, 2011, Ten Peaks realized $2.7 million in losses on derivative financial instruments, compared to realized gains on derivatives of $0.9 million for the same period last year.  The company also recorded $2.4 million in unrealized gains on derivatives, compared to unrealized losses of $1.8 million in the first three quarters of 2010.  Overall, the company recorded net losses on derivative instruments of $0.3 million in the first nine months of 2011, compared to net losses of $1.0 million for the same period last year.

Net income for the first nine months of 2011 was $0.3 million, compared to $0.1 million in 2010. The improvement reflects Ten Peaks' higher gross profit and reduced losses on derivative financial instruments, partially offset by higher operating expenses, increased finance costs and losses on foreign exchange.

Outlook

Looking ahead, it is expected that a number of external market factors, such as tight coffee supplies, ongoing volatility in the NY'C' and widespread economic uncertainty, will continue to create challenging market conditions into at least 2012. Nevertheless, management remains cautiously optimistic about Ten Peaks' future prospects.

"We are encouraged by the year-over-year increases recorded in our nine-month processing volumes," said Dennis. "Our commitment to continuous improvement has generated substantial gains in the quality of our decaffeinated coffees, which is allowing us to win and retain more business - especially with our specialty regional accounts. Accordingly, we are confident that our business strategy is sound and that we will continue to make steady progress against our corporate objectives in the coming periods."

Payment of Quarterly Dividend

In September 2011, Ten Peaks' board of directors declared a cash dividend of $0.0625 per share for the quarter ended September 30, 2011. It was paid on October 14, 2011 to shareholders of record at the close of business on September 30, 2011.

Additional Information

A more detailed discussion of Ten Peaks' third quarter and nine-month 2011 financial results and management's outlook can be found in the company's Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2011. This document, along with Ten Peaks' condensed consolidated interim financial statements for the periods, will be posted on SEDAR (www.sedar.com) on or before November 4, 2011. The MD&A and financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes of the former Swiss Water Decaffeinated Coffee Income Fund for the year ended December 31, 2010, which are also posted on SEDAR.

Readers are cautioned that the summary information contained in this press release is not a suitable source of information for readers who are unfamiliar with Ten Peaks or the former Fund. This press release should be considered a precursor to, and not a substitute for, reading the financial statements and MD&A, which provide more detailed information related to the company's performance and future prospects.

Company Profile

Ten Peaks is a publicly traded company that owns all of the interests of the Swiss Water Decaffeinated Coffee Company Inc. (SWDCC), a premium green coffee decaffeinator located in Burnaby, BC. Currently, Ten Peaks' business and financial results are wholly based on the business and financial results of SWDCC.

Established in 2000, SWDCC is one of the few chemical free coffee decaffeinators in the world. It employs the SWISS WATER® Process, a proprietary, chemical free decaffeination method.  Accordingly, SWISS WATER® Process decaffeinated green coffees are distinct from the majority of the world's decaffeinated coffees, which are exposed to chemical solvents such as methylene chloride and ethyl acetate during decaffeination.

Certified organic by the Organic Crop Improvement Association, the SWISS WATER® Process is the world's only branded decaffeination process and enjoys substantial recognition in the specialty coffee trade and with consumers.

SWISS WATER® Process decaffeinated green coffees are sold to many of North America's leading specialty roaster retailers, specialty coffee importers and commercial coffee roasters. SWDCC also sells coffees internationally through regional distributors.

Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements may include such words as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance, as well as management's current estimates, but which are based on numerous assumptions and may prove to be incorrect. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties, including, but not limited to, risks related to processing volumes and sales growth, operating results, supply of coffee, general industry conditions, commodity price risks, technology, competition, foreign exchange rates and general economic conditions.

The forward-looking statements and financial outlook information contained herein are made as of the date of this press release and are expressly qualified in their entirety by this cautionary statement. Except to the extent required by applicable securities law, Ten Peaks Coffee Company Inc. undertakes no obligation to publicly update or revise any such statements to reflect any change in management's expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those described herein.

 

 

SOURCE Ten Peaks Coffee Company Inc.

For further information:

Sherry Tryssenaar, Chief Financial Officer
Ten Peaks Coffee Company Inc.
Phone: 604.444.8780    Fax: 604.420.8711
Email: sherry.tryssenaar@tenpeakscoffee.ca
Website: www.tenpeakscoffee.ca

Profil de l'entreprise

Ten Peaks Coffee Company Inc.

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